Creative Technology the maker of MP3 and MP4 Players is in trouble. the Company that is seen as being one of the most arrogant in the highly competitive portable music market has reported yet another quarter of losses.

The $21 million dollars for the latest quarter takes the Singapore based Companies losses to more than $118 million for the year.

One of the biggest problem for Creative is that consumers are turning off their product in droves and retailers are starting to dump them from their shelves. Further impacting the company is the release by Microsoft of the Zune player which may say could well destroy Creative completely. 

Creative, which has been trumped by Apple in the battle for the portable digital music player market, suffered a net loss of $21 million, nearly double the $12.7 million loss in the three months to June.

The loss also reversed a $691,000 net profit in the year-earlier period, the Singapore and US-listed company said in a statement. September quarter revenues fell 13.8 percent to $241.5 million. The company had earlier announced a net loss of $118.2 million for its fiscal year that ended June.

Analysts had projected a net profit of $50 million to $92 million on expectations of a one-time gain from the $100 million payment from rival Apple Computer for the settlement of a patent dispute.

But Craig McHugh, president of the company’s US subsidiary Creative Labs, said that the payment was received only October 6 and would be credited during the current quarter to December.

Apple Computer in August said that it would pay Creative $100 million to settle a dispute over patented technology used in its iPod and Nano players. Creative had sued Apple for use of its “Zen patent” on technology to select and sort songs in the company’s Zen MP3 player.

Creative’s MP3 players, which were once touted as the key to the company’s future growth, have been losing out to Apple’s iconic iPod in the world market.

Under the terms of the settlement, Creative would also begin marketing its own line of iPod accessories as part of Apple’s “Made for iPod” program. McHugh said Tuesday that this deal opened “significant market opportunities” for Creative’s speaker systems, earphones, headphones, and other audio enhancement products.

“We can now develop products to market to the tens of millions of iPod users through our participation in the Made for iPod Program,” he said.

McHugh said that Creative expects strong sales during the yearend holiday season and hopes to increase gross margins to 20 percent or higher. The company also expects to cut operating expenses in order to achieve profitability.

CIMB-GK Research said that it has cut its rating for Creative from “trading buy” to “underperform” with a target price of S$9.50 ($6.08). “Although we are pleased with Creative’s good progress in bringing down its operating costs, we remain negative on its core operations,” CIMB-GK analyst Jonathan Ng said in a note to clients.

“Demand for its audio products has been waning, and we see competition in the MP3 player market intensifying with Microsoft joining the game.”

Software giant Microsoft has vowed to release a “Zune” MP3 player and matching online music and video store in time for the yearend holiday shopping season.

DBS Vickers analyst Tan Ai Teng said that she was reviewing her estimates for Creative before deciding on whether to downgrade the existing “hold” rating on the stock.

Creative shares fell S$0.80 to S$10.40 at the end of the morning session Tuesday at the Singapore Exchange.

“Their market share is falling and the industry is getting more competitive,” Tan said.

Meanwhile, McHugh also announced that Creative will sell majority interest and control of its manufacturing operations in Malaysia as part of a streamlining process.

Founded in 1981, Creative gained fame for its SoundBlaster cards that allowed personal computers to be used as home entertainment units but it has struggled since venturing into consumer electronics.




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